Dealing with
externalities

Most production systems, agriculture included, can cause both
positive and negative side-effects, or externalities that are not accounted for
in markets. Agricultures positive and negative environmental services are
unintended consequences of market activities that have an impact on people other
than the producer of the effect. These by-products tend not to be priced in the
market and, hence, their economic values are unknown or difficult to assess.
Consideration of all the positive externalities of agriculture is not readily
possible. There are cases where the same phenomenon may be positive in certain
circumstances and negative in others, or it may be valued positively by some
observers and negatively by others. A positive externality may reduce a negative
one, and vice versa. In addition, positive and negative externalities are often
linked closely, e.g. soil salinity and improved employment opportunities in
irrigated agriculture.

Moreover, positive externalities are often ignored whereas
negative ones tend to be reported widely. A well-known example of a negative
externality is the loss of biodiversity as a result of draining wetlands for
agriculture (FAO, 2002d). Such losses are accelerating as human settlement
continues to impinge upon wetlands and forests (Box 10).

Box10 Developing river water resources: the case of the
Senegal River

Source: FAO, 2001b

The Senegal River illustrates the complexity of valuing environmental
externalities. When river dams were managed for hydropower development,
the environmentally and socially sustainable production from floodplains
was affected negatively. Conventional management of large dams ended the
annual flooding on which such production systems depended. The river water
was henceforth retained in an upstream reservoir and only released depending
on the demand for power generation. This change in ecosystem functioning
has not only led to the loss of traditional agricultural production systems,
but also to that of local and migrant biodiversity that depended on the
extensive floodplains at the fringe of the desert. There are ample examples
of the need to compensate people who are relocated forcibly from the reservoir
area. However, little is known about compensation for those downstream
inhabitants who are not forced to relocate but who cannot maintain their
pre-dam production systems.

Many agricultural systems have become efficient transformers
of technologies, non-renewable inputs and finance. They can produce large
amounts of food, but have substantial negative impacts on capital assets
(Pretty, 1999). These assets comprise not only the natural resources of soil and
water per se but also nutrient cycling and fixation, soil formation, biological
control, carbon sequestration and pollination. The issue raises concerns about
what constitutes success in agricultural production if large yield increases
come at the cost of environmental and health problems. One problem is that the
benefits and costs accrue to different people and are not measured in the same
units. In the 1970s and 1980s, some people considered energy to be such a common
measure. Indeed, sustainable systems are much more energy efficient than modern
high-input systems. Low-input rainfed rice in Bangladesh and China can produce
1.5-2.6 kg of cereal per megajoule of energy consumed. This is some 15-25 times
more efficient than irrigated rice produced in Japan and the United States of
America. On average, sustainable systems produce 1.4 kg of cereal per megajoule
compared with 0.26 kg/MJ in conventional systems. Modern agricultural systems
depend heavily on external inputs, largely derived from fossil fuels. In most
industrialized countries, energy is cheaper than labour. Hence, it seems
rational to overuse natural resources and underuse labour. The result has been
adverse, long-term effects on the environment (Pretty, 1999). Although labour is
cheaper than energy in many developing countries, agriculture often has negative
effects on the environment. In relation to their policy implications, the
environmental externalities of agriculture operate at different geographic
scales, e.g. carbon sequestration (a positive externality) on a world scale, but
salinization of a watershed on a local scale (a negative externality).

Applying concepts such as the polluter pays
principle, cost recovery and cost sharing may prove unrealistic, impractical or
politically disastrous to governments in countries where millions of people are
poor and small-scale farmers are trying to make a living on marginal lands. A
common concern in developing countries is how agricultural production in
marginal areas can fulfil its primary function without depleting the natural
resource base. For these reasons, developing appropriate technologies, assigning
individual or common property rights, and the promotion of alternative
employment outside the agricultural sector will be key strategies.

The salinity and drainage
question

Much of the environmental impact of irrigated agriculture is
linked to the management of water and salt balances of irrigated lands. This
includes both minimizing the amount of water required to remove salt from the
root-zone, and minimizing the land area required to store the salt temporarily
or permanently. Good management has proved difficult. Although human-induced
salinity problems can develop swiftly, solutions can be time consuming and
expensive. Various improvements in irrigation and agronomic practices can be
introduced depending on the type of salinity and on the cause of the
accumulation of salts to harmful levels in the rootzone. The fact that saline
waters have been used successfully to grow crops shows that under some
conditions, e.g. in Mediterranean climates with winter rains, saline water can
be used for irrigation. Experience in other locations, where negative long-term
effects from irrigating with saline or sodium-rich waters have been observed,
indicates that more permanent interventions in the water and salt balance are
generally required.

All arid-zone rivers have natural salt profiles, attributable
to mobilization of salts in the catchment area and saline seeps. An additional
cause of river salinity is irrigation-induced transport of fossil salts owing to
pumping from the groundwater into drains that discharge into the river.
Figure 3 shows the salinity profiles for four rivers. It illustrates the
various degrees to which salts are returned to the river or remain in the land
and the groundwater (Smedema, 2000). Increases in the salinity of rivers and
streams in many dry parts of the world pose an ecological hazard that has been
largely overlooked. The ecological impact of increased salinity in inland waters
warrants greater attention in view of the vulnerability of aquatic ecosystems to
increased salt levels.

Most of the drainage water from agricultural land in Punjab,
Pakistan, is reused, either from surface drains or pumped up from shallow
groundwater. In fact, in some systems in Punjab, one-half to two-thirds of the
irrigation water is pumped from the groundwater. Therefore, the leached salts
are returned to the land rather than disposed of in the river system or in
evaporation ponds. The average salt influx for the Indus River water is
estimated to be about twice the amount that flows out to sea. Hence, half of the
annual salt influx remains in the land and the groundwater. Most of the
accumulation takes place in Punjab. A more extensive drainage system is needed
in order to maintain a sustainable salt balance in the irrigated lands.
Worldwide, only 22 percent of irrigated land has a drainage system (less than 1
percent of irrigated land has subsurface drainage). This makes it inevitable
that more land will go out of production because of waterlogging and salinity.
In general, those people who will lose their land are already very poor
farmers.

The drainage situation in Pakistan is in sharp contrast with
that in Egypt (Box 11). In Egypt, subsurface drains that take the
drainage water back to the river underlie a large portion of the irrigated land.
The salts do not stay in the Nile Basin but are discharged into the
Mediterranean Sea. During part of the year, the salt content in the lower Indus
River is much lower than in the lower Nile River (in the Nile Delta) and more
salt disposal into the Indus River could be accepted. However, during critically
low-flow periods, such disposals would not be possible. The only option during
such periods would be to store the drainage water temporarily for release during
high-flood periods. Extending the Left Bank Outfall Drain, now operational in
Sindh, into Punjab could provide a more permanent, but quite expensive, solution
than the present inadequate number of evaporation ponds.

Box 11 Egypts drainage system

Source: Ali et al., 2001

In the past, serious salt problems had not been associated with the large
irrigation area of Egypt. It was only after the widespread introduction
of perennial irrigation that measures to counteract salinization were
needed. Factors that have contributed to the worsening of the problem
include the expansion of irrigated agriculture into sandy or light-textured
soils with inherently higher percolation and seepage rates. Much of this
newly irrigated land lies on the Nile Valley fringes of higher elevation,
which contributes to salt movement toward the low lying lands. Perennial
irrigation has led to more seepage throughout the irrigated areas, exacerbated
by an increase in rice and sugar-cane production requiring higher water-application
rates. Drainage reuse is widespread and not easily identified. The simple
arithmetic of farm-level water productivity of about 40 percent and a
basin-level water productivity of 90 percent suggests that water is applied
at least twice on average. The remainder, which is too saline for reuse,
goes to the Mediterranean Sea or to lakes used as evaporation ponds (close
to the sea).

Since 1970, Egypt has provided an area of almost 2 million ha
with subsurface drainage and associated infrastructure, such as open drains and
pumping stations, to transport and reuse the drainage water. An additional 50
000 ha is drained each year. Egypts drainage programme is one of the
largest water management interventions in the world. The total investment
amounts to about US$1 000 million, and since 1985 part of the investment has
been used for the rehabilitation of old drainage systems. Since the installation
of the drainage systems, yields have increased and there has been a substantial
improvement in the salinity-affected lands.

Wastewater reuse

The reuse of municipal and industrial wastewater in irrigated
agriculture is widespread. Some of the wastewater is treated before it is
reused. However, much of it is not, and this causes significant environmental
and health hazards. In addition, many of the treatment plants in developing
countries operate below design capacity, which contributes to the discharge of
untreated wastewater into irrigation and drainage canals. Concentrations of
heavy metals in canal and drain sediments and in soil samples, as well as faecal
coliform bacteria counts in canal and drainage water, often exceed WHO
water-quality guidelines. For example, wastewater constitutes 75 percent of the
total flow of the Bahr Bagar Drain in the Eastern Delta, Egypt, effectively
turning the drain into an open sewer. Soil samples in the Eastern Delta showed
cadmium levels of 5 mg/kg, more than twice the natural level. Evidence of uptake
of trace elements in crops has also been reported. For example, in the Middle
Delta, Egypt, cadmium levels of 1.6 mg/kg (ppm) have been found in rice. Such
levels are harmful for human health, and warrant serious attention. Thus, some
of the drainage water is unfit for reuse, not because of its high salt content
but because of its pollution load. In addition, safe disposal of such polluted
wastewater becomes a real problem (Wolff, 2001). Similar cases have been
reported for other countries, e.g. Pakistan and Mexico (Chaudhry and Bhutta,
2000).

Plate 13 Dredging irrigation
canal (Egypt)

FAO/16222/L. SPAVENTA

The challenge of managing the conjunctive use of groundwater
and canal water successfully has been alluded to before. In some areas,
over-abstraction of groundwater is evidenced by the rapid dropping of
water-table levels. In other areas where the groundwater is too saline for
agricultural production, the water table rises as a consequence of
over-irrigation and seepage from irrigation canals. Much agricultural land has
gone out of production as capillary rise from shallow water tables has ruined
soils and poisoned crops. Reversing this process is difficult and expensive
(Box 12). In India, the extent of the waterlogged areas is estimated at 6
million ha. In 12 major irrigation projects with a design command area of 11
million ha, 2 million ha are reported to be waterlogged and another 1 million ha
salinized (Shah et al., 2000).

Box 12 Environmental impact of unplanned groundwater abstraction

Source: Shah et al. 2000

Unplanned and unmeasured groundwater abstraction can cause considerable
damage to fragile ecologies. An example is the Azraq Oasis in Jordan.
The Azraq is a wetland of more than 7 500 ha that provided a natural habitat
for numerous, unique aquatic and terrestrial species. The oasis was acclaimed
internationally as a major station for migratory birds. However, it dried
up completely as a result of groundwater mining upstream through pumps
for irrigation and the water supply for the city of Amman. Overdraft resulted
in the decline of the initially shallow water table from 2.5 to 7 m during
the 1980s, drying up the natural springs whose supply to the oasis fell
to one-tenth of its flow in the ten years from 1981 to 1991. The whole
ecosystem collapsed and the salinity of the groundwater increased from
1 200 to 3 000 ppm. However, through a combination of reverse pumping
of water from elsewhere into the centre of the lake, cleaning of springs
and rehabilitation, it has been possible to restore the Arzaq wetlands
almost to its original state, and the birds (and the tourists) have returned.

It is estimated that salinization alone causes 2-3 million
ha/year of potentially productive agricultural land to be taken out of
production. How much of this land is reclaimed (to various degrees) and then
cultivated again is unknown. Pollution of groundwater by salts and residues of
agrochemicals is also a common occurrence. Where slightly saline groundwater is
used for irrigation, the repeated cycles of water application to the fields,
seepage of the excess water and pumping it up again from the top of the aquifer
increases the salt load of the groundwater. If the vertical permeability of the
aquifer is restricted, only limited mixing of seepage water takes place and the
top of the aquifer from which the water is pumped becomes increasingly saline.
This process has been documented for several irrigation systems in Punjab,
Pakistan, where conjunctive irrigation with canal water and groundwater takes
place (Kijne et al., 1988).

The poorest farmers are those most vulnerable to environmental
degradation as most of them farm under difficult growing conditions. A few
farmers cultivate the best lands; the vast majority of the farmers cultivate the
less fertile and marginal lands. Further degradation is likely to affect the
quality of the farmers sources of drinking-water and irrigation water, the
quality of their land, possibly the quantity and quality of the fish they catch,
and ultimately their health. Lack of data on water and salt balances of
irrigated land and lack of knowledge on how much water (and of what minimum
quality) should be committed to downstream users frustrate attempts to allocate
water more equitably to users in order to improve basin-level water productivity
in agriculture. The way forward to ending unsustainable practices and reducing
the concentrations of salts and agrochemicals that result directly from the
degradation of the soil and water resources is a consolidated and long-term
effort to improve land and water management.

Generally, agriculture and rural development have not
benefited from systematic environmental analysis and management. One reason for
their exclusion in the past was probably the very large number of projects
(large and small) that could have been referred for an assessment, which would
have overwhelmed the environmental assessment agencies. Environmental impact
assessment (EIA) is usually applied to physical project planning (e.g. dams,
roads, pipelines and industries), but seldom to farm practices and rural
development plans. As a result, inadequate planning and inappropriate land-use
practices have persisted. In many areas, soil, land and water resources are used
inefficiently or are degraded, while poverty and income disparities
grow.

With some 30 years of experience, EIA techniques now usually
consider not only biophysical impacts but also socio-economic effects on health,
human migration in and out of the project area, training of local workforce,
local government capacity building, etc. Government and international policies
are still needed to establish appropriate legal frameworks and an institutional
base for EIA for agricultural projects. These policies should include transfer
of the necessary knowledge to the rural poor, e.g. through agricultural
extension services, so that they can participate in the environmental assessment
of agricultural water resource management and project planning (FAO,
2002d).